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I typically try as hard as possible to focus on the “trend right now.”  In fact, I wrote an article recently essentially averring that “the U.S. stock market trend is bullish right now, so try to enjoy the ride.”  With this piece I want to offer a slight clarification.

Recognizing that the trend is bullish “right now” and focusing on that primarily, DOES NOT mean it is OK to stick your head in the sand and forget about the potential need to “play defense.”

The Mid-Term Election Year Danger Zone

Just for the record, what has happened in the stock market since the end of January is not at all unusual given the fact that this is a mid-term election year.

Figure 1 below displays the growth of $1,000 invested in the Dow Jones Industrials Average (using monthly closing price data only) ONLY from the end of January through the end of October during every mid-term election year starting in 1902.

Figure 1 – Growth of $1,000 invested in Dow Jones Industrials Average ONLY during February through September during mid-term election years; 1900-2018

The net result to date (including Feb through May of this year) is -51%.  To put this into perspective, note that buy-and-hold has generated a gain of over +47,000% during the same time.

Summary

Bottom line: The trend of the major U.S. averages is presently still bullish.  But risk is ever present in the financial markets, which is why your investment plan should have some contingencies built in – “just in case.”

Which reminds me to invoke:

Jay’s Trading Maxim #29: The purpose of a stop-loss order (or a trailing stop) is NOT to maximize profitability.  The purpose of a stop-loss order (or a trailing stop) is to save your sorry assets.

Jay Kaeppel

Disclaimer:  The data presented herein were obtained from various third-party sources.  While I believe the data to be reliable, no representation is made as to, and no responsibility, warranty or liability is accepted for the accuracy or completeness of such information.  The information, opinions and ideas expressed herein are for informational and educational purposes only and do not constitute and should not be construed as investment advice, an advertisement or offering of investment advisory services, or an offer to sell or a solicitation to buy any security.